If you knew exactly when each price dip for Bitcoin was going to occur, you could make tens of thousands in one day. I don’t know what Bitcoin is about to do, but I thought a machine just might… anyhow, here’s why I won’t make the mistake of algorithmic trading trading again.
Cryptohopper#
Cryptohopper is an online auto-trading bot service that automatically make trades between asset pairs (for example, BTC-USD) on various cryptocurrency exchanges, such as Coinbase, Binance, Kraken, you name it. The service they offer is very reliable and secure–ultimately, you are in control of the funds you allocate for Cryptohopper to trade with.
Here’s where Cryptohopper is dangerous–in order to get respectable gains, you need to employ an algorithm for your bot to make trades that you never would have thought of. People make these algorithms for their full-time jobs. If you make one of these algorithms yourself, you had better know what you are doing. I certainly don’t, so I subscribed to one of the most popular and high-rated algorithms on the site: Profit Hero.
My message to you (Source: University of Alaska Fairbanks)
Profit Hero, like the other most popular algorithms on Cryptohopper, is configured to automatically trade on dozens of cryptocurrencies. These include the top twenty coins ranked by market cap along with dozens of other obscure coins you have probably never heard of.
Too Good to Be True#
I was using Cryptohopper to be my FOMO-prophylactic; that is, I wanted a bot to buy into coins before they became big. But here’s the thing–Cryptohopper is built to be an active-trading platform. A bot might make thousands of trades in a single day. The algorithm I had configured my bot to run was a black box, so I just had to trust that it would deliver the results Cryptohopper’s marketplace had promised about it.
Cryptohopper shows stats about algorithmic signals and strategies. These can be manipulated by developers to show higher profit values by evaluating algorithm performance over a time range during a bullish market.
These results reflect the average profit a user can experience while running the algorithm; however, Cryptohopper’s definition of profit can be misleading. When you set up an auto-trading bot, you dump a specific amount of cash into the bot’s reserves, and Cryptohopper will use those reserves to purchase cryptocurrencies on your behalf. By allocating that cash to Cryptohopper, you are essentially investing that money into a mixed and ever-changing bag of cryptocurrencies. What you should compare your “profits” to is the amount of money you would have gained if you had simply invested the same amount of money into a cryptocurrency (or portfolio of cryptocurrencies) and just left it to ride the volatile waves of the market. And when Cryptohopper does not address that point, it fails to educate its users.
Sour Grapes? Nope.#
My complaint is not that I lost money when I put funds into Cryptohopper. I did make profits, but when I compared these gains to what I would have gained if I had just bought the same amount of Bitcoin, Ethereum, or Litecoin with the money I had indirectly invested (via Cryptohopper) into a random assortment of obscurecoins, it turned out that my bot had underperformed compared to these markets.
To verify this, I wrote a script using the Binance API that evaluated what I would have profited from a buy-and-hold strategy during the same timeframe during which they entrusted a bot to automatically handle my portfolio. I then invited other members of the community to run my script, specifying the assets that they traded… lo and behold, their bots’ smart algorithms were also doing worse for their portfolios than a simple holding strategy.
A closer look at the algorithm marketplace revealed that many of the most popular and “profitable” algorithms had deceptively started measuring their performance when the cryptocurrency market as a whole was on a bullish tear. The fact that these algorithm providers were attributing potential gains to their algorithms’ intelligence is just not right.
Conclusion#
Cryptohopper has built an impressive and democratic tool. Algorithmic trading used to be reserved for well-capitalized firms that could hire engineers to analyze the market and make trades based on signals that only machines would be able to detect. Now, Cryptohopper has made it so anyone with a bit of disposable cash can get started auto-trading today.
While I won’t be using Cryptohopper again anytime soon, I appreciated that it encourages you to jump into the deep end of trading and to start learning about altcoins. You can easily end up owning a collection of volatile assets that might be worth less than shitcoin, but at least you would be participating in the market and a step further in your journey of crypto investment.
